Smaller operators in the market are at the sharp end of the slowdown. Small and medium-sized (SME) housebuilders have seen sales rates fall to their lowest level since the Global Financial Crisis. This is only the latest in a series of challenges to hit the sector, with SME housebuilding having already undergone a marked decline. SMEs were responsible for delivering around 40% of new homes in the 1980s, but the sector has contracted significantly, with the number of firms falling by 60% since 1995. SME housebuilders now face a fundamental challenge for survival, yet supporting the growth of the SME sector is crucial. A greater diversity of housebuilders is essential for delivering more new homes: previous Savills analysis has found that by boosting SME capacity, approximately 70,000 additional homes could be delivered each year across the UK.
A healthy SME sector is also vital for promotors of strategic land, who otherwise face a shallow pool of buyers for the c.36,000 hectares that are currently progressing through planning and development. Both groups share in common a lack of resources or financial capacity to mitigate such challenging marketing conditions; for each, funding continued activity has become highly difficult.
Targeted intervention to address demand and cost issues would boost activity across SME housebuilders and land promotors, and maintain their integral role in delivering new homes. On the demand side, a new equity loan scheme would support buyers - especially first-time buyers - in the markets that are struggling most. Alongside this, greater flexibility from local planning authorities on Section 106 agreements would encourage more collaboration between housebuilders, investors, and Registered Providers (RPs) and unlock stalled sites. Support for RPs to buy more land would also remove bottlenecks experienced by promotors. From a cost perspective, improved access to finance for infrastructure or cashflow purposes would help mitigate delays in planning or connecting sites to utilities, and increase the financial resilience of SME housebuilders.
The funding and policy changes recommended in this report would have a material impact on the capacity of SME housebuilders and land promotors to operate in the market. Successful implementation of these changes will improve the consistency and availability of buyers for land and new homes. This will not only remove barriers to delivery of the 1.1 million plots controlled by these operators, but unlock activity amongst their partners across the planning and development process, stopping or reversing the decline in housebuilding. The alternative is a continued decline and long-term structural damage to the SME sector through a loss of capacity and through company insolvencies, reducing the otherwise positive effect of recent planning reforms.